The Financial Crisis Usa

Published: 2021-06-29 07:04:01
essay essay

Category: History Other

Type of paper: Essay

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A financial crisis is a situation in which the supply of money is outpaced by the demand for money; this means that liquidity is quickly evaporated because available money is withdrawn from banks (called a run) forcing banks either to sell other investments to make up for the shortfall or to collapse.
So what had happen during the last few years and ended up in big financial crisis, probably the worst since the great depression of 1929?
The beginning of this decade was a period of strong global growth, growing capital flows, and prolonged stability which made market participants seek higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence where also there was a weak underwriting standards, and unsound risk management practices.
During the period from 2000 and 2006 there was an upright rise in prices of houses and stocks, so people wanted to invest to make money, and they started borrowing cash from banks and financial institutions to buy homes, shares, and other high risk investments seeking high returns on their investments.
At the end of 2006, beginning of 2007 the real estate bubble got burst in the United States of America pushing the prices of houses to fall down dramatically until 2008 were it reached levels way below the cost of purchase; realizing that, investors start defaulting on their payments to their banks who now start facing a shortage in cash or liquidity disabling them to meet their dues because banks also brow money from depositors and have to pay interest against this money, as well banks need to lend money to make their profits which led them to a shortfall in managing their assets and liabilities.

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